The interconnectedness of financial inclusion and bank profitability in rising economic powers: evidence from heterogeneous panel analysis
International Journal of Social Economics
ISSN: 0306-8293
Article publication date: 22 December 2022
Issue publication date: 28 August 2023
Abstract
Purpose
The objective is to assess the relationship between financial inclusion and bank profitability in emerging economies, i.e. “Bangladesh, Egypt, Indonesia, Mexico, Nigeria, Pakistan, Philippines, and Vietnam”.
Design/methodology/approach
The second-generation econometrics of panel data has been applied to examine the cross-section independence and control the heterogeneity between cross sections. Additionally, the authors employ the following tests for the analysis: “the unit root test, Westerlund's (2007) bootstrap cointegration, Pedroni cointegration, fully modified ordinary least square (FMOLS), and heterogeneous panel causality techniques”. The annual data consist of the period from 2000 to 2019.
Findings
The findings reveal that financial inclusion fosters bank profitability. Therefore, easier access to financial services and products will maximize banks' profitability. Additionally, the association between financial inclusion and bank profitability is unidirectional.
Originality/value
This research is a first attempt to bring a novel contribution to the subject of emerging economies by investigating the association between financial inclusion and bank profitability. Another unique addition to the literature is the use of a novel financial inclusion index. At last, a panel cointegration technique, FMOLS and heterogeneous panel non-causality tests are taken into consideration for the in-depth analysis.
Keywords
Acknowledgements
Funding: This work was supported by the Talent Development Bureau of Hainan Provincial Committee of CPC Grant numbers: RZ2100007211, Science Research Foundation of Hainan University (kyqd(sk)2022043).
Citation
Wang, Y., Ali, M., Khaskheli, A., Khan, K.A. and Puah, C.-H. (2023), "The interconnectedness of financial inclusion and bank profitability in rising economic powers: evidence from heterogeneous panel analysis", International Journal of Social Economics, Vol. 50 No. 9, pp. 1217-1231. https://doi.org/10.1108/IJSE-05-2022-0364
Publisher
:Emerald Publishing Limited
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